EU Prips consultation document accepts one size does not fit all

The consultation document covers pre-contractual disclosures, while new sales rules will be wrapped into the Markets in Financial Instruments Directive (Mifid) and Insurance Mediation Directive (IMD) consultancies. Regarding the sale of Ucits products, "it seems preferable to address such sales through the Ucits framework, rather than through Mifid", states the document.

Perhaps the most important aspect of the Prips document is its acknowledgment that one size does not fit all when it comes to legislating on the various financial, insurance and pension products that have come under review. The EU's acknowledgement of this point marks a minor victory for the Joint Associations Committee (JAC), which has lobbied for the need to accept this principle.

The document does not indicate whether the final rule will take the form of an EU regulation rather than a directive, though some commentators have suggested that the language points towards the former.

As for a proposed definition of Prips, the document includes open and closed investment funds, all structured products and other derivative instruments. The actual wording in the document states that: "A Prip is a product where the amount payable to the investor is exposed to fluctuations in the market value of assets or payouts from assets, through a combination or wrapping of those assets, or other mechanisms than a direct holding."

The document also states that the goal is to arrive at a comprehensive list of Prips: "The Commission services consider it likely that the definition [of Prips] would need to be supplemented by an indicative list of products to which the regime would or would not apply. Such a list should be relatively open to revision and update."

The 25-page document also answers one of the more open questions about the Key Information Document (Kid). It states that the Prips proposal would amend the EU's Prospectus Directive so that any Prip subject to the Prospectus Directive, and therefore requiring a summary, will have this requirement automatically satisfied by the Kid.

Product manufacturers will take primary responsibility in most cases. "The 3L3 task force has been examining this specific issue, and a majority of its members considered that, as a general approach, the product manufacturer should be responsible for producing KII (Key Investor Information)."

"For a Ucits KIID (Key Investor Information Document), risk disclosures are handled by a graphical presentation of investment risk... For many Prips, this broad approach might be adopted with little modification."

The document appears to acknowledge that margins on structured products are not the same as fees on funds, though this area of the consultation paper is likely to be the mostly hotly debated before January deadline for comments. "The costs of engineering are taken through pricing spreads at the point of structuring the Prip or when unraveling the structure. In these cases, where it is clear what an investor must invest to buy the Prip, it is not clear how to assess the ‘value for money' of the Prip and compare it to other Prips [ie. funds]," states the document.

The JAC has already organised a meeting for interested parties in the UK, which will take place at 2.30pm on Thursday December 16 at the ISDA office, One Bishops Square, London, E1 6AD.